ACI World Airport Economics Report and Key Performance Indicators

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1 ACI World Airport Economics Report and Key Performance Indicators Economics and Finance Workshop Patrick Lucas Senior Manager, Economics and Statistics, ACI World

2 Disclaimer on Key performance indicators September

3 Key performance indicators and benchmarks KPI: A quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance. Benchmark: A standard or point of reference against which things may be compared The baseline then serves as a benchmark for comparing the financial implications of alternative plans. Oxford dictionary September

4 2 2 approaches to benchmarking: to benchmarking: Internal (or self-benchmarking) where an airport compares its performance with itself over time; External (or peer benchmarking) where an airport compares its performance against other airports, either at a single point in time or over a period of time. September

5 Airport Economics Report and KPIs The survey generated responses from ~800 airports for the 2014 financial year. These airports handled 4.79 billion passengers or about 71% of worldwide passenger traffic in September

6 K1 Return on invested capital (ROIC) Robust metadata and nomenclature for KPIs Definition Data requirement Data source(s) Definition: Return on invested capital (ROIC) represents the relative return from net profits (after taxes) before interest as a proportion of invested capital (net assets + long-term debt) Data requirement: TRt = Aero + non-aero + non-operating revenue in time t OEt = Operating expenses in time t IEt = Interest expense in time t DEt = Depreciation expense in time t Tt = Taxes paid in time t NAt = Net assets = Total assets minus total liabilities in time t LDt = Long term debt in time t Formula: Purpose: To monitor and evaluate airport profitability. ROIC gives a sense of how well a company is managed from the perspective of generating returns for investors. Data source(s): Typically, the data is derived from the income statement and balance sheets of an airport operator s annual financial statements Formula Interpretation Methodological limitations Interpretation: ROIC is measure of profitability because it not only considers the effective management of total revenues and total costs for a calendar year but also includes invested capital within a single measure. From an investor s point of view, ROIC measures the payment that both debt and equity holders would receive by providing their capital. In the case of equity holders, this is the return for bearing the risk. RRRRRRRR (%) = TTTT tt OOOO tt IIII tt DDDD tt TT tt xx NNNN tt + LLLL tt Methodological limitations: Accounting standards and methodologies aimed at calculating these profitability indicators vary not only across jurisdictions but also across companies and industries. Care should always be taken in explaining the nuances of different profitability indicators. Although some airports are geared towards profit maximization, 6 others are mandated purely to recover the costs of providing airport services and September

7 External benchmarks Industry aggregates +50 indicators across dozens of dimensions KEY PERFORMANCE AREAS AIRPORT FINANCIAL PERFORMANCE DISTRIBUTION OF REVENUE AND COSTS PRODUCTIVITY AND EFFICIENCY AERONAUTICAL ACTIVITIES NON-AERONAUTICAL ACTIVITIES AIRPORT CAPITAL EXPENDITURE (CAPEX) PROFITABILITY LIQUIDITY AND SOLVENCY EMPLOYMENT September

8 Basic yet fundamental questions to answer statistically? Where have we been, where are we and where are we going? How big is the industry? What is the performance of nonaero vs. aero revenues? Is the airport industry profitable? Is the industry over leveraged? September

9 Pax: Resilience Air cargo: Mode shift Movements: Efficiency Global evolution of movements, passengers and cargo traffic ( ) September

10 Movements, passengers and air cargo growth September

11 Market correction brought on by Great Recession Evolution of monthly movements traffic in North America ( ) September

12 Number of airports with >40 mppa - world ( ) >40 mppa: Busiest become busier Delhi (DEL) Seattle (SEA) Chengdu (CTU) Toronto (YYZ) Munich (MUC) Mumbai (BOM) Rome-Fiumicino (FCO) London-Gatwick (LGW) September

13 A doubling of total pax traffic by 2030 >14 billion September

14 Global industry revenue by source (2014) 4.1% Source: ACI Airport Economics Survey (2015) September

15 Aero alone is insufficient to cover airport costs Non-aero Capital costs Operating costs September

16 What is the performance of non-aeronautical vs. aeronautical revenues? September

17 Conventional wisdom: Revenue and airport output September

18 Reality: Non-aero is not growing at a faster rate non-aero 9.1% aero vs. 7.2% non-aero/nonoperating growth (2014/2013) September

19 Proportional evolution of aero versus non-aero revenues ( ) Source: ACI Airport Economics Survey (2015) September

20 Year-over-year growth in revenues (2014/2013%) YearYera Growth divergence in non-aero Source: ACI Airport Economics Survey (2015) September

21 Year-over-year growth in revenues (2014/2013%) September 2016 Source: ACI Airport Economics Survey (2015) 21

22 Distribution of non-aeronautical revenues Source: ACI Airport Economics Survey (2015) September

23 Reasons for proportional decline (2014 vs. 2005) Mature markets slowing non-aero revenue growth pulling down global figure; Fact growth time Weakened Euro-area; slowed growth in non-aeronautical Fact Heightened security; longer security queues vs. dwell time, security charge, etc.; Hypothesis September

24 What is the largest component of non-aeronautical revenues? September

25 Distribution of non-aeronautical revenue by source (2014) Source: ACI Airport Economics Survey (2015) September

26 Distribution of non-aeronautical revenue by source (2014) Retail concession leading source in rest of world Car parking leading source in North America Source: ACI Airport Economics Survey (2015) September

27 Revenue per car parking space (2014) (US$, per day) Source: ACI Airport Economics Survey (2015) September

28 Retail concession revenue per square meter (2014, US$, per day) Source: ACI Airport Economics Survey (2015) September

29 Non-aeronautical revenue (concessions) per passenger by airport size (US$, 2014) Retail per pax rises by airport size Car parking, Rental income, F&B and rental car concession stable or no relationship across all size categories * * *Car parking revenue includes revenue from airport-operated parking lots and car parking concessions revenue **Other: Advertising, aviation catering service, utility recharges and other commercial sources September

30 Non-aeronautical revenue per passenger by till system and ownership model (2014) Liberalization/privatization higher non-aero per pax $11.43 $7.61 $8.07 $8.57 $7.07 $7.78 Single till Hybrid till Dual till Public ownership (100%) Public-private partnership (PPP) Private ownership (100%) September

31 Summary: Industry continues to grow in terms of pax and revenues; Long term growth emerging markets; Air cargo remains relatively weak; Globally proportion of non-aero revenues is not growing faster than aeronautical (European non-aero maturity S-curve); Retail concession largest component of non-aero; North America leader in car parking; Positive correlation - throughput and retail yield on per pax and square meter basis; Higher non-aero per pax - dual till and privatized airports September

32 Does passenger satisfaction increase airport non-aeronautical revenue? A comprehensive assessment research report September

33 Thank you September